By AVI JORISCH Pirates are on a hot streak this season. World-wide, the first quarter of 2011 saw 142 recorded attacks, up from 67 in that time last year. Off the coast of Somalia there were 97, as against 35 last year. Why? Despite some efforts by Western powers to patrol the Horn of Africa, pirates are still able to access capital, as any successful business must.

The world's first pirate stock exchange was established in 2009 in Harardheere, some 250 miles northeast of Mogadishu, Somalia. Open 24 hours a day, the exchange allows investors to profit from ransoms collected on the high seas, which can approach $10 million for successful attacks against Western commercial vessels.

While there are no credible statistics available, reports from various news sources suggest that over 70 entities are listed on the Harardheere exchange. When a pirate operation is successful, it pays investors a share of the profits. According to a former pirate who spoke to Reuters, "The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials. . . . We've made piracy a community activity."

The big player on the Harardheere exchange is a pirate named Mohammed Hassan Abdi, who goes by the name of "Afweyne," or "Big Mouth." Known as the "father of piracy," Abdi and his son Abdiqaadir are in charge of the exchange and are, according to a recent United Nations report, among the best-known pirates in the area. Abdi's boats have hijacked a variety of ships, including the German freighter Hansa Stavanger, which German special forces tried unsuccessfully to liberate in 2009. After a four-month hostage ordeal, the pirates released the ship off the coast of Kenya.

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A crowd collects ransom money from pirates in Harardheere, Somalia..Piracy has changed Harardheere from a small fishing village to a town crowded with luxury cars. As local security officer Mohamed Adam put it to Reuters, "Piracy-related business has become the main profitable economic activity in our area and as locals we depend on their output." Mr. Adam claims that the district government gets a cut of every dollar collected by pirates and uses it—naturally—for schools, hospitals and other public infrastructure.

Cutting off these financial relationships is essential to curbing piracy. The U.S. could begin by instituting, via executive order, a sanctions regime against these rogue actors. Just as the government maintains lists of terrorists, narco-traffickers, weapons proliferators and money launderers, so too should it keep a list of pirates. This would heighten international awareness of piracy and give banks an additional tool to employ against illicit actors. Pirates, like all other criminals, eventually use the banking sector to try to hide their criminal gains.

The U.N. and other international organizations—such as the Financial Action Task Force (FATF), an intergovernmental body that sets standards regarding terrorism finance and money laundering—also have roles to play. For one, the U.N. should expand its current Somalia and Eritrea monitoring committee, which was established in 1992 to implement the U.N. travel ban, asset freeze, and arms embargo on Somalia, as well as the arms embargo on Eritrea. An expanded committee could improve the anti-piracy intelligence-gathering capabilities of its members and track the finances of significant international pirates.

For its part, the FATF could get serious about including piracy within its mission of highlighting how money launderers and terrorists raise and move funds. To date, the organization has never issued a report on piracy. Doing so would prod a variety of international organizations, policy makers, law-enforcement agencies, and banking authorities to grapple seriously with this threat.

There are four banks in Somalia today—the Central Bank, the Commercial and Savings Bank of Somalia, and the Somali Development Bank (all of which are wholly or partly owned by the government), as well as the independent Universal Bank of Somalia. International financial institutions providing correspondent banking services to the four, or wiring money into or out of the country, should carry out enhanced due diligence on all transactions to make sure they are not related to piracy or the Harardheere stock exchange. In Washington, the Treasury Department could mandate this standard of care by issuing guidance to all American financial institutions.

Piracy increases the cost of international commerce by $12 billion annually, and in Somalia alone more than 20 vessels and 400 hostages are currently being held, according to the International Chamber of Commerce. The U.S. and others have a duty to deploy their financial firepower against this threat.

Mr. Jorisch, a former U.S. Treasury official, is president of the Red Cell Intelligence Group and the author of "Tainted Money: Are We Losing the War on Money Laundering and Terrorism Finance?" (Red Cell IG, 2009).

ABOARD THE FISHING VESSEL AL MULAHI, in the Gulf of Oman — Late on Thursday afternoon, as the American destroyer Kidd loomed alongside this hijacked Iranian dhow, the warship’s loudspeaker issued a command in Urdu to the dhow’s frightened Urdu-speaking crew. American sailors stood ready, weapons in hand. If you have weapons aboard, the voice boomed, put them where we can see them, on the roof of your wheelhouse. Fifteen Somali pirates were also on board Al Mulahi, crouched and cornered on the very vessel they had seized in November to use as their mother ship. They had knives, a pistol and four assault rifles. But they did not speak Urdu. For a moment, the captors depended on their captives. They asked their Iranian hostages what the American sailors had just said. One of the hostages, Khaled Abdulkhaled, answered without pause: “They said they are about to blow this ship up.” The pirates panicked. Their unity broke down. Each man hoped, variously, to surrender, find cover or hide. Discarding their weapons, nine of them crammed into a small hold beneath the wheelhouse. Six more huddled near the open bow. Soon, armed American sailors climbed aboard. They spotted the six Somalis on the bow, who did not resist. As more of the boarding team swarmed over the side, the Iranian hostages pointed to where the remaining pirates were hiding. The sailors pulled those men out, one by one, into the light and forced them face down onto the deck. Al Mulahi was secured. The Iranian hostages had been saved without a shot being fired. In interviews by two journalists from The New York Times who spent Thursday night on the rescued vessel, the former hostages, the captured pirates and the American sailors guarding them told of a drama on the open ocean: Naval vessels, helicopters and inflatable boats first thwarted a pirate attack and then converged on the pirates’ roving base, freeing 13 hostages who had expected to die. The operation was a geopolitical thriller, as the aircraft carrier John C. Stennis, which had been warned not to return to the region by senior Iranian defense officials on Tuesday, answered on Thursday by swiftly organizing the rescue of Iranian hostages not far from Iran’s coast. But the rescue was also the dramatic finale to a slow-moving ordeal for the hostages. To survive more than six weeks after their 82-foot gillnetter was captured at gunpoint and converted to a platform for attacks against international shipping, the fishermen relied on calm nerves, prayer, camaraderie and, in the end, duplicity. Their troubles began in November, shortly after Al Mulahi left its home port of Chabahar, Iran, on a voyage intended to last several weeks. Its captain, Mahmed Younes, was seeking marlin, which he said could fetch about $1.50 a pound. He hoped to fill the vessel’s freezers with five or six tons of fish before returning home. But pirates were at sea, too, and hoping for a far larger score. Not long after leaving port, while transiting the Omani coast, Al Mulahi was approached by a smaller Iranian dhow, the fishing vessel Bayan. Unbeknownst to Al Mulahi’s crew, the Bayan had been hijacked by Somali pirates. When it came alongside, the pirates appeared on its deck, and fired rifles into the air. Now they had Al Mulahi, too. The pirates’ intentions became clear immediately. The Bayan was almost out of fuel, rendering it useless as a mother ship from which the pirates could mount attacks in skiffs against passing ships they hoped to hold for multimillion-dollar ransoms. The Somalis transferred their equipment onto Al Mulahi. Captain Younes said two of the Bayan’s crew members had been killed by the pirates, and the rest were exhausted and terrified. But before Al Mulahi pulled away, the Bayan’s fishermen apologized for carrying the pirates to another boat, and for the fact that they were going free even as Al Mulahi’s crew was being taken hostage. Captain Younes, who had been captured by Somali pirates while on a different fishing vessel three years ago, understood. He knew something of a fishing crew’s helplessness when faced by gunmen at sea. He had survived 25 days that time, he said, and escaped when the fishermen overpowered three pirates on the vessel when the five others left on a skiff to hunt for ships. As his new period of captivity began, his mind was working. He gave his crew an order: “Just comply,” he said. With time, they might get a chance. The pirates, perhaps sensing an obedient crew, did not beat them, the hostages said. They ordered Al Mulahi to set a course to Xaafuun, a port on the northern Somali coast. After they arrived and anchored the dhow, many of the pirates went ashore, leaving guards and bringing on food, water and, with time, more gunmen to prepare for a high-seas hunt. Only one of the hostages, Fazel ur Rehman, was allowed onto land. He was ill. The pirates gave him medicine, he said. Page 2 of 3) As they waited, the hostages, led by their captain, made a plan. They understood that the Bayan had been released because it ran low on fuel. Captain Younes told the crew members that when they finally set off again, they would surreptitiously dump their diesel in hopes of hastening their release. About a week ago, with 15 pirates and two small skiffs and outboard engines aboard, the fishing vessel left Xaafuun and turned north toward the Omani coast. This time of year the sea conditions there are calmer than off the Somali shore, making it easier for pirates in skiffs to chase large vessels and board them, according to Rear Adm. Kaleem Shaukat, the Pakistani officer commanding Combined Task Force 151, an international counterpiracy team working along the African coast. As they moved north, the fishermen said, they followed their captain’s plan. “We slowly emptied our fuel, dumping it over the side when they were not watching,” Mr. Abdulkhaled said. For a moment, the plan seemed unnecessary. Soon after leaving Xaafuun, one of the ships in the international naval task force, which the hostages described as a French Navy vessel, pulled alongside. The hostages thought they might be saved. But the French did not have an Urdu speaker on their crew, said the fishermen, who are from eastern Iran, near Pakistan, where many residents speak the language. When the sailors asked in Arabic and English whether Al Mulahi had pirates aboard, the pirates hiding at the hostages’ feet understood the questions. The hostages, afraid for their lives, had to answer that they did not. The vessel steamed away. The pirates re-emerged on deck and resumed their hunt. On Thursday, six of the pirates rode off in one of the skiffs with rifles and their sole rocket-propelled grenade launcher to look for a ship to seize. Finding the motor vessel Sunshine, a 583-foot bulk cargo carrier, they rushed the ship but failed to board when United States Navy helicopters arrived in response to the crew’s distress signal. One MH-60 helicopter approached the skiff. A short while later other helicopters began circling Al Mulahi. But the pirates had herded most of the crew members into the forward hold and were themselves hiding below decks. The fishermen could not signal their plight. The six pirates in the skiff returned later, without weapons, saying they had been briefly detained and had tossed their weapons into the ocean, disposing of evidence and thereby eluding arrest. They thought they had escaped again, fooling the ship that had stopped them — the U.S.S. Mobile Bay, a guided-missile cruiser that is part of the Stennis’s strike group — just as they had fooled the French. One of the pirates, Mahmoud Mohammed, said they had a cover story ready if they were approached again. They would tell the Navy that while it might seem suspicious that they were roaming the high seas in a tiny skiff, they had a reason: they were looking for lost nets. Unknown to the hostages and the pirates, a helicopter from the Mobile Bay was tailing them from afar, out of earshot, keeping watch with long-range optics. By returning and boarding the Iranian-flagged dhow, the six pirates had confirmed the Navy’s suspicion and given away their floating base. The Kidd, the flagship of the international counterpiracy task force in the area, was already steaming toward them, to interdict. But on Al Mulahi, Captain Younes and his fishermen were crestfallen. Mr. Abdulkhaled worried that the Bayan’s crew had returned to Iran in November and had told the fishermen of Chabahar that Al Mulahi had been captured by the same pirate band that had killed two of the Bayan’s fishermen. All these weeks later, he said, everyone probably expected the worst. “Our families probably think we are dead,” he said, thinking of his wife and only child. Then the Kidd appeared. First it was a gray dot on the horizon. But it was moving fast, directly toward them. Now it was the pirates’ turn to feel fear. They quickly threw over more rifles and their remaining rockets for the launcher they had ditched, but had to keep a few rifles to maintain control over the fishermen. Then the Kidd pulled alongside. The sailors called Captain Younes on the radio, but at first spoke to him only in English and Arabic. Just as with the French, the captain could give no information away. Page 3 of 3) Then the Kidd switched to Urdu. Captain Younes, without his captors’ realizing what he was saying, asked for help and gave permission for the Americans to board — a critical point of protocol given the tensions between the United States’ and the Iranian governments. When the loudspeaker ordered that any weapons be put on the wheelhouse roof, Mr. Abdulkhaled told the pirates his lie: the Americans had said they were about to attack. The pirates’ resistance suddenly ended. “That is when they started shaking,” he said. By the next morning, after the Navy had decided to take the pirates aboard the Kidd and transfer them by helicopter to the Stennis, it was the pirates who were compliant and deflated. Special Agent Joshua M. Schminky, 39, a Naval Criminal Investigative Service law enforcement liaison for the international counterpiracy task force, stood before the pirates and addressed them. The Americans were going to confiscate the pirates’ equipment. “This skiff?” he said, nodding toward its hull. “Now we own it. Thank you very much.” He added: “What you’re going to do now is put it in the water. Just like you are going to hijack a ship.” The Iranians watched as the pirates stood up, attached an outboard engine to the skiff’s stern and began to shove it toward the gunwale, where it would be lowered onto the waves. Mariners all, the former hostages could not simply watch. They stood and joined in, with Captain Younes calling out orders. For the pirates, this was the last act aboard Al Mulahi. Already some of them had been ferried by inflatable boat to the Kidd, where Chief Petty Officer Werner C. Mammen — 6-foot-5 and 320 pounds, perhaps the largest man they had ever seen — stood on the fantail to greet them and take them into shipboard custody. For Captain Younes, his crew members following orders without gunmen to interfere, the splashing of the skiff onto the surface of the Gulf of Oman signified a moment he had not known would come. After more than six weeks as a hostage, the captain of the fishing vessel was back in command.

Floating Arsenals Help Battle Pirates on High SeasArmories off Somalia Ferry Guns and Guards to Passing VesselsThe MNG Resolution, a floating arsenal in the Gulf of Oman, shuttles guards and weapons for private maritime security companies that protect ships in one of the most dangerous shipping routes in the world. Photo: Niki Blasina/The Wall StreetBySarah Kent andCassie WerberFeb. 2, 2015 10:36 p.m. ET2 COMMENTS

ON THE GULF OF OMAN—Before dawn one morning in November, four men on the deck of the MNG Resolution lifted cases of guns and body armor out of shipping containers and heaved them into a waiting speedboat.

The team zipped across the water to a tanker, where the crew pulled aside razor wire and hoisted the weapons aboard. The four men clambered up a rope ladder, and the speedboat raced back.

The 141-foot Resolution, built 30 years ago to service offshore oil platforms, has a new job: She is a floating armory and bunkhouse for contract security forces. At least a half dozen such boats ply the Gulf of Oman.

The oceangoing armories are the byproduct of global trade, high-seas piracy and national arms restrictions. Shippers traversing the dangerous waters off Somalia want armed guards to protect their cargo and crews, but most countries won’t let private security forces bring guns into their ports. So ships like the Resolution have appeared to cache weapons offshore for security companies and ferry their guns and guards to vessels needing protection.Paul Mutter leads the security team on the Resolution and is in charge of inspecting and maintaining the weapons. ENLARGEPaul Mutter leads the security team on the Resolution and is in charge of inspecting and maintaining the weapons. Photo: Niki Blasina/The Wall Street Journal

The shipping industry once regarded armed guards on vessels as too dangerous. But a spate of Somali pirate attacks several years ago changed that thinking. Every month now, thousands of weapons pass through the Indian Ocean and hundreds of security teams rotate on and off ships in the Gulf of Oman. A similar trade goes on in the Red Sea and off Sri Lanka.

Sovereign Global, a U.K.-based security company, can accommodate 200 people in the armory it operates off the coast of Djibouti on the Horn of Africa. The MV Mahanuwara, a 40-year-old supply ship that works off the southern Sri Lankan port of Galle, can hold a thousand guns and the ammunition needed to use them.

The international shipping industry spent around $1 billion on armed guards and equipment in the Indian Ocean in 2013, according to Oceans Beyond Piracy, a nonprofit group based in Colorado. Attacks in the high-risk area have fallen precipitously in the last two years. The last hijacking and ransom of a merchant vessel by Somali pirates was in 2012.

The proliferation of armory ships is fanning concerns. There is no official record of how many armories exist or who operates them. Nor are there any regulatory bodies overseeing such enterprises in international waters. International standards for private-security firms don’t address floating armories. In theory, the ships are overseen by the nations whose flags they carry, but some in the industry say vessels don’t always declare they are armories.

The regulatory environment allows “companies whose operators may not be licensed to use or transfer weapons and ammunition to act with impunity,” said a December report by the Omega Research Foundation, a British nonprofit group focused on the arms industry. The report raised concerns about how armories store and account for the weapons they hold.

“We saw floating armories were being done mostly quite badly and largely illegally, and we felt we could do better,” says Mark Gray, co-founder of the company that operates the Resolution, MNG Maritime Ltd.

Critics say the armories themselves could be targets for attack by pirates or terrorists. India, fearful that armories present a security risk, is pushing the International Maritime Organization, a United Nations agency, to develop guidelines for regulating the industry. In a 2012 report, the U.N. Security Council committee on Somalia and Eritrea said that the armory business was “uncontrolled and almost entirely unregulated, posing additional legal and security challenges for all parties involved.”

In October 2013, the MV Seaman Guard Ohio, an armory operated by Washington, D.C.-based AdvanFort International Inc., drifted into Indian waters. Indian authorities seized the vessel and arrested its crew and passengers. Onboard were 35 assault rifles and 5,680 rounds of ammunition, Indian officials said. Last July, AdvanFort said the charges against the 35 men on board had been dropped after eight months. AdvanFort couldn’t be reached for comment.

Mr. Gray says he favors greater oversight of the industry. MNG Maritime has an arms-export license from the British government. “At the bottom end of a market, all you need is a ship,” he says. “There were, and are, some real bucket shops.”ENLARGE

Mr. Gray is a former colonel in the U.K.’s Royal Marines. In 2010, he spent three months patrolling the coast of Somalia in command of a naval task group. When he retired, he says, he thought about setting up a maritime-guard service but saw greater opportunities in running an armory.

He teamed up with a university friend, Nicholas Holtby, a former investment banker prone to seasickness but eager to deploy his risk-management skills in a new venture. In November 2013, they launched their first vessel, the Sea Patrol. Months later, they upgraded to the Resolution.

The company says it plans to expand further. Whenever a new booking comes in to the cramped office aboard the Resolution, the computer chirps: “You’re gonna need a bigger boat!”—a line from the movie “Jaws.”

Getting on board the Resolution requires an 18-hour boat ride from the Emirati port of Sharjah, around the spur of Oman, to a spot 25 miles off the coast.

Once aboard the armories, most guards can’t wait to get off. They are employed not by the armories, but by separate security companies, which often pay them at a lower rate, or not at all, for time spent before boarding a tanker or cargo ship passing through the high-risk area.

“I’ve been in lots of hideous places,” said Neal Fearn, a former Royal Marine and maritime-security guard who now drives the speedboat that shuttles guards to and from the Resolution. “One armory, I don’t know who was running it, but it wasn’t pretty. There was no air conditioning, no communications. It was dirty.”

As the industry grows, competition is pushing up standards.

The Resolution has Wi-Fi, and there is a gym and shaded relaxation area on top of the locked shipping containers holding the guns. A sign pinned to a crate of weights outlines the latest crew challenge: the Resolution 1000, a punishing series of 10 exercises to be repeated 100 times.

The security guards sleep six to nine in a cabin, stacked in narrow bunk beds three high. Luggage is stored in racks out on deck. Toilet seats were brought aboard as a concession to female visitors.

At 4:00 in the morning of Nov. 19, Mr. Fearn was at the helm of the speedboat to ferry a team of guards to a liquefied-natural-gas carrier lighted up in the distance.

The crew ran six trips that morning, shuttling guards and weapons to and from tankers and container ships traveling in and out of the high-risk area.

The labor is physical. A box of weapons and ammunition can weigh 66 pounds, boxes of body armor and other equipment even more. In the summer, temperatures can soar above 100 degrees Fahrenheit, and during the monsoon season the seas can be rough.

Armories typically charge between $1,500 and $5,000 to run a shuttle to a passing ship, and sometimes charge extra for room and board.

“There’s been days when we’ve had 10 or 12 transfers,” said Robert “Bones” Henzell, who was on the Resolution’s bridge at the start of a midnight shift standing watch. “It’s pretty much a 24-hour job.” Although the Resolution floats outside of the area seen as at high risk from pirates, the four-man security team—all veterans of the British military—keeps a round-the-clock watch.

For the guards rotating on and off the armory, there are plenty of idle hours. The following morning, several men passed time fishing for dorado and flying fish. The boatswain, a Filipino sailor with a mohawk and soul patch, was the only one catching anything. No one in the group has ever had an encounter with pirates.MNG Resolution ship security officer Mark Roberts describes how the ship would respond to an attack. Photo: Niki Blasina/The Wall Street Journal

A few weeks earlier, the crew had spotted a small boat speeding toward it. The security team scrambled to the bridge, pulled on their body armor and held their weapons above their heads as a warning signal.

“It was four guys and a girl in a bikini with 10 fishing lines off the back,” recalled Paul Mutter, who leads the security team and is in charge of inspecting and maintaining the weapons.

Mr. Mutter said the armory inspects each weapon when it arrives, then logs it into the company’s computer database.

Practices vary across the industry, partly because of the lack of oversight. Sitting in international waters, the armories have mostly existed in “a horrible gray area,” says one shipping lawyer.

Even within the industry, some people acknowledge that more needs to be done to improve transparency and oversight.

“I think globally there is a huge regulatory gap,” says Paul Gibson, director at the Security in Complex Environments Group, a U.K.-based industry body focused on working with government to develop standards for the private-security sector. “There’s a complete lack of transparency about a number of floating armories being operated.”

MNG Maritime’s Mr. Gray says the lack of oversight sometimes creates problems, including getting visas for security guards to pass through the region’s ports. “About twice a month we have issues, and you have no recourse to anyone,” he says.

Standing on the deck of the Resolution, hours after finishing an assignment that took him from India to the Persian Gulf, security guard Jason Cunningham recalled being stuck on an armory for three weeks after the port of Khor Fakkan in the United Arab Emirates was closed to security guards last year.Jason Cunningham talks about the life of a maritime security guard. Photo: Niki Blasina/The Wall Street Journal

“Some floating armories should really be sunk to the bottom of the ocean,” he said. “We don’t ask for much: a gym, some Wi-Fi, decent food.” He said the armory he was stuck on had none of those things, and at times was so overcrowded that guards had to find places to sleep out on the deck.

The governments of some coastal nations are wary of armories off their shores. Restrictions imposed by some port cities are the reason that crew members have to travel all the way around the tip of Oman to reach the armory ships.

The decline in attacks over the past two years has generated some uncertainty in the budding industry.

Security guards, for their part, say they believe pirates still pose a threat. Rajiv Upadhyay, a 37-year-old security guard staying on the Resolution in November, recounted how a ship he was stationed on was followed for about 10 miles off the coast of Somalia last January. It wasn’t clear whether the pursuers were pirates.

Last May, a liquefied-petroleum-gas carrier that security guard Ashok Kumar was helping to guard en route from Sri Lanka to Saudi Arabia was approached at high speed by another vessel, prompting Mr. Kumar to brandish his gun. Again, it wasn’t known whether they were pirates.

Piracy is becoming a problem in other areas. Data from the International Maritime Bureau, an affiliate of the International Chamber of Commerce, show that sea attacks now are more common off oil-rich West Africa than off the Somali coast. The data also show that the hijacking of vessels to siphon off fuel cargoes is on the rise in the waters near Indonesia.

But armed guards can’t operate in those areas, partly because the trade routes pass closer to land, giving coastal nations more territorial jurisdiction.

So for now, the armory business is confined to the waters off Somalia—and useful only as long as the shipping industry remains fearful of attacks, crews held hostage or killed, and ransom demands.

Mr. Gray says even the industry’s optimists wonder: “If there are no attacks for six months to a year, where is the industry going to be?”